Europe's debt woes returned following Spanish benchmark 10-year bond yields spiking to their highest levels since December, which came after the government unveiled further swingeing cuts on top of last month's stiff austerity budget.

Markets have become worried that the severity of the cuts could fuel a recession, in turn hitting the country's ability to repay its debts.

The Dow saw its biggest drop of the year, shedding 1.65 per cent, the S&P 500 slid 1.71 per cent and the tech-rich Nasdaq fell 1.83 per cent.

And in Europe London's FTSE 100 tumbled 2.24 per cent, the Frankfurt DAX 30 lost 2.49 per cent and in Paris the CAC 40 fell 3.08 per cent.

The downbeat news came after US jobs growth in March was below forecasts and much lower than previous months, while China has released a string of results pointing to a slowdown.

"The economic data from China are pointing to a slowdown yet the easing (measures) investors had hoped for haven't materialised," said Castor Pang, research head at Core Pacific-Yamaichi.

China Overseas Land was down 1.3 per cent at HK$15.70 after the Chinese firm announced Tuesday that its March contracted sales were down 31 per cent on-month.

Chinese shares closed up 0.13 per cent. The benchmark Shanghai Composite Index, which covers A and B shares, ended up 0.13 per cent, or 3.07 points, at 2,308.93 on turnover of 67.5 billion yuan ($10.7 billion).

However, the gain was capped amid concern over the country's economy after a recent string of weak data.

"Investors are still cautious in the face of China's economic slowdown," Qian Qimin, an analyst at Shenyin Wanguo Securities.

Eyes will now be on Friday's release of economic growth figures for the first quarter, with analysts forecasting an 8.3 per cent rise, according to a poll by Dow Jones Newswires.

Chongqing city-related shares were mixed after reports Tuesday that Bo Xilai, former head of the southwest municipality, was stripped of his Communist Party post and his wife arrested in connection with the murder of a British businessman.

Chongqing Brewery ended down 0.92 per cent at 28.09 yuan, while Jiulong Electric Power lost 1.09 per cent to 10.87 yuan. But transport firm Chongqing Gangjiu bucked the trend to rise 1.24 per cent to 7.35 yuan.